Parking Increase

[mainegal]

I am SO enjoying this lesson in business economics!

 

[DaParkers]

If the tipping point was reached, they wouldn't be seeing higher crowd levels than they were at this point last year. Again, the parking fee and ticket increases are ways to capitalize on the already increased attendance. They could, and should, consider lowering the cost of food and souvenirs as well. This would be in response to guest demand. Nobody's buying what you're selling? Cut the price. Everybody wants what you've got? Raise the price. It is fundamental economics. While its true that the cost (not selling price) of a -shirt sold in the Main Street Emporium is higher than the cost of the same t-shirt sold at the Disney Store in the Florida Mall, there are surely substantial mark-ups on those goods as is evidenced by in-park sales (I've never seen that before, but Julie referenced it recently) and the warehouse sale you mentioned.

This is off topic, but I have to ask. How did you like that game on Sat.? Geaux Tigers!

 

[Demosthenes]

As I stated earlier, raising ticket prices and parking fees makes good business sense. Theme park attendance is up, ancillary spending is down. Raising parking fees and theme park ticket prices capitalizes on the increased attendance. What would also make sense would be to lower souvenirs and food...they won't...but it would make sense since that would encourage spending. Fundamental economic principles dictate that when your commodity is in demand, you raise the price. Parking and tickets are in demand, it is appropriate to raise the price of those things. Food and souvenirs are not in demand; they should lower the price...again..they won't. Disney's problem isn't that they have appropriately increased parking and tickets in response to market demands, their problem is that they won't respond appropriately to the exact same market forces where it comes to product they aren't moving in their parks.

 

[Demosthenes]

This is off topic, but I have to ask. How did you like that game on Sat.? Geaux Tigers!

Not nearly as much as last year's...or 2005...or 2004...but it was a good game. In the twenty odd years I have been watching UGA football, I have seen us do that to another team on 15 occasions (score with less than 120 seconds to steal a win). It's the first I've ever seen that happen to us. That is brutal. I don't ever want to see it again.

 

[darrengs]

We have gone to WDW the last two years in a row both during the last week in August, and we had a great time both times. However, this year the parks were less crowded, now I am sure that wasn't because the prices were too low.

 

[MM32830]

Here's an interesting lesson most people not in business don't know.

Let's say you sell "widgets" (any item or service) and your net profit on the item is 12% (that's typical for small business; it's substantially lower for larger businesses).

You raise your widget price by 10%

You are definitely going to have some people not buy the widget anymore (their "tipping" point).

What percentage of customers can you afford to lose to before your price increase reduces your profits to pre-price increase levels?

Nope. It's not 10% like many will believe.

It's 45%!!! Yep, you can lose almost half of your customers and you still will make the same profit as before your price increase. And, if you are offering a service instead of a product, you will work less and make as much money.

And the lower your profit margin, the higher percentage of customers you can afford to lose. At a 6% profit margin (typical of larger businesses), a 10% price increase means you can lose 62% of your customer base and still not affect your profits.

Studies have shown that the percentage of customers lost is approximately the same percentage as the price increase so a 10% price increase could indicate a loss of 10% of your customers.

Losing 10% of your customers with a 6% profit margin means you still will realize an increase of 140% in profits.

Now, all of the above is assuming that your costs don't increase. We know that's not true but even with increased costs a price increase is almost always a profitable move, even with a loss of customers.




____________________
Armand

 

[Demosthenes]

We have gone to WDW the last two years in a row both during the last week in August, and we had a great time both times. However, this year the parks were less crowded, now I am sure that wasn't because the prices were too low.

That condition would be contrary to the reported attendance over the last several months. If that trend continues, we'll likely see more discounts on rooms (like the recently announced 7 for 4, 7 for 5 promotion). Putting heads in beds at 40% of rack rate doesn't turn a profit though; those guests have to spend money at the parks and resorts. If the guests are still not spending, something will have to give. Disney cannot consistently operate at a loss.

Maybe we will see theme park prices stabilize, but the reintroduction of ticket books and ticketed attractions. Maybe other in-demand commodities like fast pass and internal transportation will become fee-based. It is apparent that Disney sees the easiest (and least controversial) changes to be increasing theme park ticket prices and parking fees.

Again, if Disney's problem was that they couldn't get people into the parks, cutting theme park prices and parking fees would make perfect sense; since the parks are busy, they must capitalize on the crowds in the parks. They could also capitalize on their guests by incentivizing the food and souvenirs that they cannot seem to sell (presumably because of the high cost of those goods) by cutting those prices. Still, you could argue that in this economy a Goofy hat, at any price, isn't going to be much of a temptation for most people (it could just be that nobody wants what they are selling). Disney probably sees that too, and that may be why they are looking to capitalize on their one sure bet (theme park attendance).

 

[DisneyKevin]

That condition would be contrary to the reported attendance over the last several months.

I'm not sure that park attendance is up.

If that were the case, we would not be seeing the extension of free dining into the holiday season.

We would not be seeing the "7 for 4" promo being offered during the normally busy winter months.

We would not be seeing Annual Passholders being offered 15 months for the price of 12.

Disney doesnt offer things like this when attendance is up.

 

[Demosthenes]

I'm not sure that park attendance is up.

If that were the case, we would not be seeing the extension of free dining into the holiday season.

We would not be seeing the "7 for 4" promo being offered during the normally busy winter months.

We would not be seeing Annual Passholders being offered 15 months for the price of 12.

Disney doesnt offer things like this when attendance is up.

Well, that's not entirely true. We could be seeing these promotions again because they have been successful thus far in filling hotel rooms. Bookings are obviously down for the time frame of the discounts, that is why they release those discounts; but these promotions have been successful. Nobody knows Disney's real attendance figures since they won't release them, but reports from this podcast, others I listen to, as well as anecdotal evidence from these boards indicates that the park attendance is higher this year over last year. Pete mentioned this several podcasts ago. Obviously, if that info is erroneous, my point is invalidated. I would agree that if Disney cannot get people in their parks, raising prices is asinine. That has not been the report I have heard (or seen).

Sent from my iPhone; please pardon any typos.

 

[MM32830]

This article just posted on OrlandSentinel.com is quite timely and on-topic.

Darden Restaurants says no to deep discounts
Darden Restaurants argue discounts would cheapen its brands in the long run.

Read the entire story at:

http://www.orlandosentinel.com/business/orl-bizdarden-discounting-100709100709oct07,0,7311307.story



__________________
Armand

 

[DisneyKevin]

This article just posted on OrlandSentinel.com is quite timely and on-topic.

Darden Restaurants says no to deep discounts
Darden Restaurants argue discounts would cheapen its brands in the long run.

Read the entire story at:

http://www.orlandosentinel.com/business/orl-bizdarden-discounting-100709100709oct07,0,7311307.story



__________________
Armand

I read the article.

They are not offering "deep discounts", but they are sending out coupns.

They are not raising prices.

 

[jcb]

Park attendance in itself isn't driving the promotions. Park attendance could, in fact, be greater this year than last year but WDW's park revenue and operating income (earnings before interest and taxes) for Disney's second and third quarters (Disney's fiscal year starts on October 1) are significantly down this year as compared to last year. 4 for 3 (part 1) put people in the parks and stemmed the decreases somewhat but operating income was still down, Disney says, "primarily due to decreased guest spending and lower corporate alliance income recognition" (which I take to mean in park company sponsorships).

My point is that park attendance and bookings could in fact be "up" as compared to last year (though I am doubtful) but it isn't up "enough" to offset the lower revenue and operating income. So, to increase revenue, WDW apparently feels it needs to cram the parks with even more people than came last year.

Oh, joy.

 

[MM32830]

I read the article.

They are not offering "deep discounts", but they are sending out coupns.

They are not raising prices.

Notice the article said they are sending coupons to "some" of their customers.

And while they are not raising prices, they are also not lowering their prices which most of the other chains are doing. Will this create a perception that Darden's restaurants are more expensive than all the others? This could create a perception similar to that of a business raising its prices.


_________________
Armand

 

[ADP]

I'm really enjoying the economics debate.

My biggest concern with the prices isn't so much the increases or the costs per se, but the rate at which the increases are occurring.

Does anyone else realize that park tickets have gone up 25% in the last 6 years?!?!?. Resort prices have gone up 20% during that same timeframe?!?!? Food prices; although I can't put an exact percentage on it has probably paced ticket and resort prices as well.

If that pace continues we will be looking at WDW as an elitist's resort/vacation destination by the year 2025. Pro sports is a good example. good seats are mostly occupied by the rich and corporations. A normal fan (middle-class) is sitting in the cheap seats these days. The price increase over the years for a pro sporting event (football, baseball, basketball) has created this situation. (some would/could argue players salaries - different topic, different day ).

Although I completely understand the need for price increases why do they need to be so steep, so fast? I also understand maximizing profits are important too, but there becomes a point when you look a bit greedy. If people perceive Disney as greedy...perception becomes reality.

 

[G66]

The parking increase is a short sighted money grab, plain and simple.

Most people don't price out parking before making the trip. Is it a good move to fleece your guest before he or she has even set foot on property? Frankly, it smacks of desperation on Disney's part. They are raising prices on the most inelastic offering, parking! Guests will be turned off and they will tell their friends and family of the fleecing at the gate.

What do you think, maybe a Frontier Land Mickey with a mask and six shooter at the parking booths?

 

[Demosthenes]

I read the article.

They are not offering "deep discounts", but they are sending out coupns.

They are not raising prices.

I don't think Darden Restaurants and Disney are a very good comparison (and I know you didn't make the comparison, Kevin). Unless they charge a cover, or are all-you-can-eat, restaurants and theme parks offer completely different pricing structures. At Darden's restaurants, you pay for exactly what you want. The consumer has precise control over how much they will consume, and therefore how much they will pay. The fact that you enter Olive Garden doesn't mean you will pay a dime; you have to order food.

Disney charges you to enter the park. If all you did is walk in at 9:00 AM, use the bathroom, and go home at 9:15 AM, it costs you the same money as if you entered at 8:00 AM and left at midnight, having been on every attraction in between. Disney could offer 2 for 1 coupons, but the problem isn't attendance in the parks (where is the dead horse smilie?), the problem is spending once inside the park. If Darden's found that people were going to Red Lobster just to drink water and eat free garlic/cheese biscuits (hmmmm....garlic/cheese biscuits, hlhlhlhlhlhlhlhlhlhlhlhhl), they would have to consider some incentive for increased revenue, or implement some form of cover charge.

 

[MM32830]

A few posts back I wrote what effect a price increase had on net profits and what would happen when you lost a percentage of customers because of the price increase.

Let's take a look at what happens with a price DECREASE. This is really interesting.

Let's say you sell "widgets" (any item or service) and your net profit on the item is 12% (that's typical for small business)

You lower your widget price by 10%

Now, for every widget you sell you are making less money. You are not losing money, just making less. You lowered the price in order to create more interest in your item and hopefully sell more of them.

Now, the question: What percentage increase of the number of customer must you realize to just recover the decrease in profits? In other words, you lowered your price to sell to more customers. How many more customers do you need to realize the same profits as before the price decrease?

Double? - Nope.
Triple? Nope.

You need 6 times the number of customers just to cover the price decrease! In reality it won't be 6 (could be 5 times) because if you are selling widgets and you sell that many more, your cost per item will decrease and you will make a little more profit per item but nevertheless, so many people don't realize the drastic effect a price decrease has on profits.




_______________________
Armand

 

[MM32830]

I don't think Darden Restaurants and Disney are a very good comparison (and I know you didn't make the comparison, Kevin).

When I posted that message I never intended or meant to imply any comparison between between Disney and Darden. I just wanted to pass along the fact that someone out their understood the importance of not cheapening a brand by lowering prices.



_______________
Armand

 

[Demosthenes]

The parking increase is a short sighted money grab, plain and simple.

Most people don't price out parking before making the trip. Is it a good move to fleece your guest before he or she has even set foot on property? Frankly, it smacks of desperation on Disney's part. They are raising prices on the most inelastic offering, parking! Guests will be turned off and they will tell their friends and family of the fleecing at the gate.

What do you think, maybe a Frontier Land Mickey with a mask and six shooter at the parking booths?

It's a money grab, without question, but I doubt most people will feel any more fleeced by $14 than $12. This is primarily because, outside the extremely tiny minority of Disney guests that use this board and others like it, and the even smaller minority that pay attention to these threads, most people won't even know there was a price increase. Like you said, most people don't price parking before they go to the parks (probably because it isn't a real determining factor in their vacation budget...not saying that it shouldn't be, just that it isn't for most people). People won't likely complain about parking that costs less than most athletic venues, show venues and airport day parking, because it doesn't rate a significant enough blip on their own radar screens.

 

[Demosthenes]

When I posted that message I never intended or meant to imply any comparison between between Disney and Darden. I just wanted to pass along the fact that someone out their understood the importance of not cheapening a brand by lowering prices.



_______________
Armand

Fair enough. Sorry to jump to conclusions.